New Zealand is looking to exclude the use of U.N. offsets from industrial gas projects in its emissions trading scheme from as soon as 2012, as these offsets threaten to distort the market, the government said on Friday.

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Climate change minister Nick Smith said he wanted to maintain the integrity of the emissions trading scheme, which is why the government is considering banning offsets from the potent greenhouse gas hydrofluorocarbon-23 (HFC-23) and nitrous oxide credits.

"The high value for destroying these gases creates perverse incentives in developing countries to manufacture more of them bringing into question the environmental gains," Smith said in a statement.

The New Zealand scheme allows polluters and traders to import U.N. offsets called Certified Emission Reductions from clean energy projects in poorer nations. The CERs can help polluters meet their emissions reduction obligations.

But about two-thirds of the nearly 745 million CERs issued to date have come from projects that destroy HFC-23 and nitrous oxide, leading to criticism that the owners of these projects, mainly in China and India, are enjoying massive windfall profits.

The European Union has already decided to exclude the units from 2013 and a similar ban is being looked at by Australia.

"The government is also very conscious of New Zealand being a small market and, if we are alone in accepting these units, our market may be flooded or it may limit our capacity to link with other schemes," Smith said.

He said consultation would be undertaken with interested parties before a decision is made. A decision would be made after the consultation period ends in a month's time.

New Zealand fears a price collapse of domestic carbon permits if cheaper CERs from industrial gas projects are allowed in and also questions if such offsets are rewarding genuine efforts to fight global warming.